Introduction
Understanding yourself as an investor is one of the key factors in
creating an effective investment portfolio. Factors affecting your individual risk profile include:
1. Your willingness to take risk
Investments and risk go hand in hand, and the
relationship between potential return and amount of risk is called the risk/return ratio.
The smaller the risk, the smaller the potential return; the greater the risk, the greater the
potential for profit.
2. Your time horizon
The younger you are, the m
ore time you have for your investments to grow. Typically, this means the more risk you
may be willing to accept in exchange for the potential of higher returns. The older you are,
the less time you have to weather the ups and downs. As a result, you may be more comfortable
with predictable investments as opposed to more volatile, potentially higher growth opportunities.
3. Your financial position
The higher your income and net worth, the more risk you may
be willing to accept since potential losses from riskier investments in your portfolio are more easily absorbed
if you have other cash and asset reserves.
4. Your level of investment knowledge
Generally, the higher your
knowledge about investments and financial planning, the more willing you may be to include higher risk investments in your
portfolio. 
